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An FTA between the two countries would pump more than $45 billion into the global economy annually, says report

WASHINGTON, DC - 02/07/06 - The Bush Administration intends to negotiate a free trade agreement between the US and Korea "with the goal of removing tariffs and non-tariff barriers and expanding trade between the countries," according to US Trade Representative (USTR) Rob Portman.

The talks are "the most commercially significant free trade negotiation we have embarked on in 15 years," said Portman. "Removing trade and investment barriers between our two nations through an FTA will increase market access for our farmers, ranchers, workers, and businesses to the dynamic and growing Korean economy, boosting trade in goods and services."
 
Korea's Foreign Ministry's Kim Jong-hoon and Assistant US Trade Representative Wendy Cutler were appointed the chief negotiators by Korea and the US, respectively, said Portman.

The negotiations will begin May 3 after the expiration of a 90-day consultation period.

Until then, the two governments will hold preliminary talks to lay the groundwork for the more comprehensive negotiations that will follow. 

Both the US and Korea plan to conclude the talks by March 2007 with plans to implement the agreement the following September. 

Once the free trade agreement takes effect, it will have on the trade relationship between both countries as tariffs on over 90% of traded goods between the US and Korea would be phased out over the next 10 years.

A number of trade analysts say the emphasis Washington has placed on reaching a trade agreement with South Korea ahead of other countries such as Japan suggests the importance the US attaches to its security relationship with Seoul.

Korea is the 10th largest economy in the world with an annual GDP rapidly approaching $1 trillion and the US' 7th largest export market. Two-way trade in goods between the US and Korea was valued at about $72 billion in 2005. 

Major US exports to Korea include agriculture products, aircraft, machinery, and organic chemicals, while major imports include (by value) cars, telecommunications equipment, and electrical machinery.

According to the Department of Commerce, the US currently supplies 13% of Korea's international goods imports and is the 3rd largest supplier behind Japan (21%) and China (13%).

At the same time, the US accounts for 17% of Korea's goods exports to the world making the US the country's 2nd largest global market behind China (20%).

Over the past ten years - despite the residual effects of the Asian financial crisis of the late 1990s - Korea has maintained a strong real average annual GDP growth rate of 4.9% and an even stronger real average annual trade growth rate of 12.5%, according to economic analysts.

The Korea Institute for International Economic Policy (KIIEP) projects that a US-Korea FTA would shrink Korea's trade surplus with the US, but in a long run, improve Korea's GDP and create as many as 104,000 jobs.
 
The Institute also projected that the FTA "would also help raise Korea's sovereign credit rating, maintain peace on the Korean peninsula, and favorably develop the dynamics of Northeast Asia."

The Silicon Valley-headquartered Semiconductor Industry Association (SIA) applauded the announcement in a statement saying that an FTA "can address a number of areas that are of importance to the US semiconductor industry, including tariff and non-tariff barriers, standards, customs procedures, transparency, intellectual property protection, and targeted support for specific industries, among others."

"Korea is a significant market for American semiconductor producers," said SIA President George Scalise.

"In 2005, the Korean semiconductor market was approximately $4.5 billion and estimates show that growth in the Korean semiconductor market will outpace growth in the rest of the world over the next four years, adding to the potential benefits this agreement could yield," he said.

California's high-tech sector isn't the only industry sector that stands to benefit from an FTA with Korea.

In 2004 - the last year for which figures are available - Korea imported some $5.9 billion worth of California-sourced products, particularly agricultural goods, making the country California's 5th largest international export market.

That year, US agricultural exporters - a majority from California - supplied about one fourth of Korea's total agricultural imports, or about $2.5 billion worth of cotton, corn, soybeans, processed and packaged foods, fresh citrus, nuts, and fruit juices.

A 2002 study released by the University of Michigan on the economic impact of a US-Korea Free Trade Agreement concluded that such a pact would inject some $30 billion annually into the US economy - or amount to about .33% of total US GDP - while the Korean economy would grow by more than $12 billion, or about 2.1% of that country's GDP during the same period.

An FTA between the two countries would also pump more than $45 billion into the global economy every year, the report said.
 
Despite the positive projections, observers say the negotiation process won't be an easy one as several politically-active Korean agriculture advocacy groups, as well as the country's motion picture industry, have come out in vehement opposition to a free trade agreement with the US.
 
A public hearing on the US-Korea FTA hosted by the Ministry of Foreign Affairs and Trade held in the Korean capital the day after the announcement of the negotiations was disrupted after several members of a farmers group forced their way into the meeting and took over the platform.
 
Tami Overby, president of the American Chamber of Commerce (AMCHAM) in Seoul, is confident the two sides will overcome the obstacles.
"Both governments clearly understand what is involved and neither government would want to approach this if they didn't have a high degree of certainty that they could complete it within the time," she said.

South Korea launched its first free trade pact in 2004 with Chile and has since crafted free trade agreements with Singapore and the European Free Trade Association (EFTA), which is comprised of Switzerland, Iceland, Liechtenstein, and Norway.

However, a final agreement between Seoul and the 10-member Association of Southeast Asian Nations (ASEAN) has been stalled for almost a year by a rice import dispute with Thailand.

Over the past five years, the Bush Administration has put free trade agreements with Jordan, Chile, Singapore, Australia, and Morocco and completed negotiations on free trade pacts with Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Bahrain, Oman, and Peru.

Negotiations are under way or about to begin with 11 more countries - Panama, Colombia, Ecuador, Thailand, the five nations of the Southern African Customs Union (SACU), the United Arab Emirates, and now the Republic of Korea.

New and pending FTA partners, taken together, would constitute America's third largest export market and the third largest economy in the world, according to the Office of the USTR.

Go back, or read the latest Front Page stories:

Korea, US Free Trade Pact ''Possible'' by Early 2007

WASHINGTON, DC – 10/25/06 – A free trade pact between the US and South Korea could become a reality by early 2007, says chief US negotiator Wendy Cutler at the opening of this week’s fourth round of talks between the two countries; since the two sides launched FTA negotiations in February they have reported little progress even though they postponed consideration of the most politically sensitive issues, such as US access to the Korean rice market.